Gregory Bull

Libya should get the blame for high oil prices, right? Libya, or maybe Yemen, or some other Mideastern or North African country that normally keeps to its dictatorial self, and has access to oil or at least the ability to threaten its production. These countries are feeble anyway, and so when something as unruly and unprecedented as nationwide uprisings occurs, and the revolutionaries start tentatively calling what they're doing a civil war, it makes sense that oil prices would shoot up. Right?

• Don't Freak About Oil Prices! Well, perhaps. That's certainly the story line. But a decade ago, Israel's second intifada didn't cause oil prices to skyrocket any more than September 11 did. Crude oil stayed at roughly $20 a barrel through the first few years of the new century. So civil unrest can't explain the price increases today. Neither can supply and demand. U.S. gasoline supplies are at an 18-year high. OPEC says worldwide demand is low. So what's causing the $100-plus price of oil? Two words: Wall Street.

This seemed to be the original sin, President Clinton and Congress granting energy companies no limits on their speculative positions.

Oil speculators—the bankers, hedge-fund guys, and other moneymen who buy and sell oil futures contracts without actually extracting oil—account for a huge part of the marketplace. Stephen Schork, an energy-market expert who writes the Schork Report newsletter, said earlier this month that speculators now own on paper nearly six times as many barrels of oil as can be stored at the West Texas Intermediate, the nation's biggest trading facility. What's more, speculators continue to bet that the price of oil will rise: they have twice as many long contracts open today as they did in 2008, when oil hit $147 a barrel.

Back then, the public assumed that oil reached such frothy prices because demand was high and Iran had tested missiles capable of reaching Israel. Um, not really. The price was high because 60 to 70 percent of the oil contracts in the futures market were held by speculators. At the time, 60 Minutes talked with the Petroleum Marketers Association, a trade group representing 8,000 retail and wholesale suppliers. Dan Gilligan, the PMA's president, told the program that oil prices spiked because of "investors ... looking to make money from their speculative positions." Supply and demand had little to do with it. Indeed, the piece went on to cite evidence from multiple sources showing worldwide supply and demand as relatively calm during the run-up in prices. Supply was plentiful. Demand was stable.

The price of oil then dropped precipitously in 2009. The recession played a role, but so too did President Obama. As a candidate, he promised to crack down on the general corruption pervading Wall Street, which included oil speculation, the dark art that had been in practice since 2000, when Congress deregulated the oil market. This seemed to be the original sin, President Clinton and Congress granting Enron and other energy companies no limits on their speculative positions and the ability to trade oil contracts on private exchanges. Enron, as the seventh-biggest company in the nation, pushed hard for that deal, because it wanted to establish its own energy-futures exchange. But even after Enron imploded, the deregulated market remained. And that's what Obama in 2009 looked to address.

Nothing has happened since, though—no sweeping overhaul. The cynic may think it has a lot to do with Goldman Sachs serving as Obama's second-largest campaign contributor. Or that Larry Summers, Clinton's favored economic adviser, was also Obama's. (Upon departing the White House late last year to return to Harvard, Summers shrugged off the cause of oil-price spikes: "Oil goes up. Oil goes down," he said.) In any case, the speculators on trading-room floors have more than adequately filled the politicians' silence. The PMA, the same trade group that talked with 60 Minutes in 2008, tells The Daily Beast today that little has changed. Oil speculators account for just as much of a day's trading volume as before, which is roughly 70 percent. "It's still true today," Rob Underwood, PMA's manager of congressional relations, said. "And if it's not, then prove me wrong, because we still can't see the entire marketplace"—because of the trades that happen on private exchanges.

The Dodd-Frank bill, the financial-reform package that Congress passed last year, addressed a lot of this, primarily by placing a limit on speculative trades. The enforcement of that law is now being debated by the regulatory agency overseeing the energy markets, the Commodity Futures Trading Commission. This five-person board is obscure but now has a monumental responsibility. Over the next few months it will decide how closely to follow Dodd-Frank's recommendations, and in turn decide nothing less than the price of oil for years to come, and whether that price will reflect supply and demand, or investors' greed. The two Republican commission members oppose a regulated market. Democrat Bart Chilton is in favor of it, as is, surprisingly, the commission chairman, the Goldman Sachs alum Gary Gensler. This leaves commissioner Michael Dunn, who's undecided. Never has so much ridden on so obscure a bureaucrat. Through a spokesperson, Dunn declined to comment.

But for some energy suppliers, this bill won't inhibit Wall Street's brazenness. Sean Cota, an oil supplier in New England, isn't too encouraged by the CFTC, even if it writes language similar to what Dodd-Frank requested. "These Wall Street guys, they'll change the rules around so [the bill] will get neutered," he says. "I think Wall Street feels that it owns government."

Paul Kix is a senior editor at Boston magazine and a contributing writer at ESPN: The Magazine. His work has appeared in, among other places, New York, Salon, and Men's Journal.